After several layoff announcements over the last couple of years, Nortel Networks Corp.'s customers and investors have every right to be nervous about the company's future, according to one industry observer.
The Brampton, Ont.-based firm last month revealed that it would slash 7,000 jobs, and that it expects revenue could fall by as much as 10 per cent in the third quarter.
Kevin Lo, technology analyst with Lightyear Capital Inc., an investment firm in Calgary, said customers and investors might be thinking twice about dealing with Nortel.
As a customer, "I would be concerned," he said, adding that users prefer financially viable companies. After so many layoff announcements, Nortel appears anything but.
"I would look around and say, 'Who's most financially stable? Who's going to be around for the long haul?'…Unfortunately I don't know if that's Nortel."
Investors are no more enamoured with the firm than customers are.
"This is the seventh round of layoffs. When you look at that as an investor, you wonder, why couldn't they have done it the first or second time around? Seven rounds? What's the likelihood of them doing it an eighth time? It suggests they don't know how to turn their ship around."
Nortel's CEO Frank Dunn reportedly said when he took the helm that the company would quit cutting jobs. Lo pointed out that this is the second round of layoffs announced on Dunn's watch.
Joe Greene, an Ottawa-based analyst with IDC Canada Ltd., said Nortel's woes might stem from misplaced confidence.
"They were assuming the end of the downturn in the industry would have already hit the bottom. A lot of their previous layoffs were predicated on that.
"We're not as optimistic as that," Greene continued. "We don't think the downturn will hit bottom until 2004. Our take is Nortel is just finalizing what should have happened months ago."
The company's poor performance in certain sectors does not aid its cause.
"They've not been as successful as they would have hoped in the enterprise segment," Greene said, adding that Nortel purchased Bay Networks in an attempt to shore up its enterprise offerings, but ultimately the company's core audience remains the currently dismal telecommunications sector.
Lo said vendor consolidation is in the stars and Nortel - as is - might not survive the ensuing shakeout. Despite technical merits that give "the company some intrinsic value," Nortel could end up merely the division of another stronger telecom gear maker.
"They know all their sales are declining," Lo said of Nortel's competitors. "The only way to be effective is to consolidate their R&D teams, some of the upper management, and keep the customer base."
Although Nortel is staying mum on where its latest rounds of cuts will occur, rumours about where the company's axe will fall - and what that could mean for Canadian R&D - are flying.